VW shareholders berate management at AGM

WilliamBoston

HANOVER, Germany -- Volkswagen AG shareholders have waited long for their day of reckoning with management over the emissions-cheating scandal, and when the annual meeting got under way Wednesday, they wasted no time venting their anger.

For months, investors have criticized Volkswagen for sluggish performance, shoddy corporate governance, big bonuses that seemed to ignore the scandal, and the control exercised by a clutch of core shareholders.

Their main grievance, however, has centered on the appointment of Hans Dieter Pötsch as chairman of the supervisory board. As chairman, he is responsible for overseeing Volkswagen's investigation into the diesel affair, including his own actions as chief financial officer at the time it became public.

The first investors to take the podium attacked management, calling on Mr. Pötsch to step down. One investor called him the "personification of a conflict of interest." Another asked whether he was certain he wouldn't face criminal charges.

Looking down from the podium, Mr. Pötsch didn't respond.

Mr. Pötsch was appointed as chairman of the supervisory board by a court decision in September, but shareholders must confirm his election at Wednesday's meeting.

"The election of Mr. Pötsch not only goes against best corporate governance practice in Germany but gives rise to serious conflicts of interest. We are struggling to understand how Mr. Pötsch will be able to discharge his duties as a member of the supervisory board," said Hans-Christoph Hirt, co-head of the investment fund Hermes EOS.

Despite the criticism, Mr. Pötsch is difficult to depose. More than 90% of Volkswagen's voting stock is held by just three core investors: the heirs of Beetle designer Ferdinand Porsche, the state of Lower Saxony, and Qatar's sovereign-wealth fund, all of which back Mr. Pötsch.

Holders of Volkswagen preference shares, which are more widely traded, don't have voting rights.

The atmosphere was tense long before the shareholders meeting, which was postponed twice because Volkswagen couldn't assess the financial damage of pending law suits and criminal investigations in the U.S. Volkswagen, plaintiff attorneys, and U.S. authorities are expected to finalize a settlement by June 28.

As a result of the diesel scandal, Volkswagen ultimately took a charge of EUR16.2 billion against earnings in 2015 and posted a record EUR1.58 billion loss.

In the days after the U.S. Environmental Protection Agency's disclosure on Sept. 18 that Volkswagen manipulated diesel engines to cheat on emissions tests, shares plunged nearly 50%. Investors, including major funds such as Calpers, Norway's huge oil fund, Sweden's Nordea, and Hermes pension fund in the U.K., racked up losses.

Volkswagen shares have since recovered some lost ground. Investors are now confident the costs of the scandal are largely known. There is also growing confidence in Chief Executive Matthias Müller's restructuring plans.

But shares are still trading down 26% from the closing price of EUR167.80 on Sept. 17, the day before the scandal broke, and many investors complain that Volkswagen has a long way to go to become more profitable.

"We intended to invest in a global market leader and what we got was a global cost leader," quipped Alexander Scholl, fund manager for Deka, one of Germany's largest investment funds.

In March, attorneys representing nearly 300 institutional investors sued Volkswagen in Germany for EUR3.3 billion in damages. Investors allege that Volkswagen management, including Mr. Pötsch as CFO at the time, failed to disclose risks linked to the impending U.S. investigation.

There was more bad news this week when state prosecutors in Braunschweig opened an investigation against former CEO Martin Winterkorn and Herbert Diess, head of the Volkswagen passenger car unit. The prosecutor didn't rule out expanding the probe to other former board members, but said Mr. Pötsch wasn't under investigation.

The investigation was prompted by Germany's financial markets watchdog, BaFin, which concluded there was evidence Volkswagen's management board "willfully withheld information about the diesel issue from investors," a BaFin spokeswoman said.

In the face of the massive criticism of Volkswagen's minority investors, Mr. Müller on Wednesday appealed to investors for their trust and confidence. Mr. Müller recently unveiled plans to restructure the company and move aggressively into electric vehicles, self-driving cars and digital business models.

"Volkswagen is more than this crisis," he said. "Now, more than ever, it is clear to us: trust is not a given, it must be earned. We are working on it."

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